Quantum Corporation (QTM)

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Quantum (QTM)

Q3 2012 Earnings Call

January 25, 2012 5:00 pm ET

Executives

Shawn D. Hall - Senior Vice President, General Counsel and Secretary

Linda M. Breard - Chief Financial Officer, Chief Accounting Officer, Senior Vice President of Finance, IT and Facilities

Jon W. Gacek - Chief Executive Officer, President, Chief Operating Officer and Director

Analysts

Brian Freed - Wunderlich Securities Inc., Research Division

Catharine Anne Trebnick - Northland Securities Inc., Research Division

Eric Martinuzzi - Craig-Hallum Capital Group LLC, Research Division

Glenn Hanus - Needham & Company, LLC, Research Division

Alex Kurtz - Sterne Agee & Leach Inc., Research Division

Shebly Seyrafi - FBN Securities, Inc., Research Division

Presentation

Operator

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Quantum Corporation's Third Quarter 2012 Conference Call. [Operator Instructions] This conference is being recorded today, Wednesday, January 25, 2012. At this time, I'd like to turn the conference over to Shawn Hall, General Counsel. Please go ahead.

Shawn D. Hall

Thank you and good afternoon and welcome. Here with me today are Jon Gacek, our CEO; and Linda Breard, our CFO. The webcast of this call, our earnings release and a quantitative reconciliation of any GAAP and non-GAAP financial measures discussed today can be accessed at the Investor Relations section of our website at www.quantum.com and will be archived for one year.

During the course of today's discussion, we will make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements regarding our business strategy, opportunity and priorities, anticipated product launches and plans, and future financial performance. We'd like to caution you that our statements are based on current expectations and involve risks and uncertainties that could cause actual results to differ materially. We refer you to the risk factors and cautionary language contained in today's press release, as well as to our reports filed with the Securities and Exchange Commission from time to time, including our most recent 10-K filed on June 14, 2011, and 10-Q filed on November 6 -- or November 9, 2011. These risk factors are incorporated by reference into today's discussion, and we undertake no obligation to update them in the future.

With that, I'll turn the call over to Jon Gacek.

Jon W. Gacek

Thanks, Shawn. Thank you for joining us today as we report our third quarter results. For today's call, I'm going go to start with a summary of the quarter's business highlights, including revenue momentum and product launches. Linda will provide more financial color and detailed results for the quarter, and then I will come back to discuss our view on the macro environment and provide Q4 guidance.

Overall, we are pleased with this quarter's results and continued strengthening in our model and balance sheet. We had good momentum in both data protection and big data management and archive solutions. Here are several important highlights: First, we had branded revenue growth. This is the ninth consecutive quarter of year-over-year branded revenue growth. The expansion is being driven by adding new customers, increased channel traction and the revenue from new products.

Specifically, we added approximately 140 new midrange and enterprise tape customers. And for DXi, we added 170 new customers in Q3. This is the first time we have reported this number, and to put it into context, we added 120 new DXi customers in Q3 of fiscal 2011 and 110 in Q1 and 140 in Q2 of this fiscal year. We believe this is a very positive trend and is reflective of our product and channel efforts this year.

Our focus on both growing our existing channel and deepening our relationships with those partners continues. On a year-over-year basis, our DXi revenues through to channel increased 23%. The number of channel partners selling DXi increased 19%, and the number of new DXi customers obtained through channel partners increased 73%. All 3 of these metrics are good indicators of the momentum we are gaining with our data protection product and the positioning through the independent channel.

Second, we had a strong quarter with our big data management and archive products, with total revenue for this category up 18% year-over-year and 6% sequentially. Specifically, our StorNext appliances, which includes the StorNext Archive Enabled Library, StorNext M330 and Q-Series Storage system, were very strong, and customer interest in these recently launched products is very high. We believe that our big data strategy of continuing to invest in both StorNext as a standalone software product and new StorNext appliances is the right one and key to our overall growth objectives.

Our StorNext software offerings serves the needs of our installed base customers and our traditional use cases, where users have decided on their hardware choices and want to continue to own the productization of their StorNext solution. Our StorNext appliances enable us to significantly broaden our total available market and more deeply penetrate new market segments by allowing customers to purchase the whole solution from Quantum.

Another highlight was the continued DXi6701/02 momentum in Q2. We thought we might see a slight fall-off from the incredible Q2 launch quarter, but in fact, these products grew sequentially in both revenue and unit. In addition, we saw strong traction with our new entry-level DXi4601. We provide the unique offering with our DXi data protection solutions. An analyst firm, IDC, recently completed a study of our DXi solutions, showing that for every dollar invested, customers are seeing a return of $4.75, with the typical time to payback of 7 months. In addition, further demonstrating the leverage we are -- we get as our DXi business grows, the number of customers buying both a DXi appliance and a Quantum tape system more than doubled from the same quarter last year and was up 12% sequentially.

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